For despite his outstanding qualities of
courage, determination, perseverance, and benevolence, Henry Villard was also
overly optimistic, disinclined to focus on details, and prepared to risk all
for the sake of a worthy but shaky enterprise — shortcomings that eventually
would lead to financial disaster and the loss of his corporate empire.

Alexandra Villard de Borchgrave, Henry
Villard's Great Grand-Daughter, The Life
and Times of an American Titan, Preface

Émigrés
capture our interest for many reasons. For some, like Albert Einstein, that
interest is derived from their worldwide prominence in a particular field and
the specific circumstances of their departure from their home country. Others,
like investment banker Paul Warburg, made a mark by introducing aspects of
their home-country culture to their new home. Henry Villard (born: April 10,
1835 in Speyer, Rhenish Palatinate, Kingdom of Bavaria; died: November 12, 1900
in Dobbs Ferry, New York), by contrast, will be remembered for the degree to
which he embraced nearly all aspects of his adopted country’s culture, its
sense of limitless possibilities, and perhaps its sense of invincibility. To be
sure, he built a business by connecting German and American finance and shared
many of the dreams of American and German business leaders, but his reputation mirrors
widespread beliefs about the virtues and vices of his adopted land. A native
German speaker, charming, charismatic and a master of cross-cultural business,
Villard was as convinced of his own destiny as that of his adopted home country.
He came to prominence as one of America’s first "Cowboy Capitalists." His American career as a journalist,
entrepreneur, and financier spanned nearly the entire second-half of the nineteenth
century and involved some of the most important figures in American and German
business history.[1] Indeed, although he and others may have exaggerated many
aspects of his Horatio Algeresque biography, few born or naturalized Americans
could boast of such a varied and meteoric career.

Villard is a historical figure about whose
early life we do not know whether we know a lot or a little. Much information
about him exists in books and archives, but most of it came from Villard
himself or from close family members.[2]
What is clear, though, is that Villard's personal and professional development was
deeply influenced by politics.

Henry Villard (born Heinrich Hilgard) was
born in 1835 to a financially comfortable family in Speyer, one of the oldest
cities in the German states. Located on the west bank of the Rhine, Speyer was
part of the Pfalz (Rhenish Palatinate), a region ceded to the kingdom of Bavaria
twenty years before Villard's birth. During the French revolutionary wars of
the late-eighteenth and early-nineteenth centuries, the region had been
incorporated into France and bore many ideological influences and scars from
the French occupation. Villard's father, Gustav Leonhard Hilgard, was a
relatively successful bureaucrat from a Protestant family, his mother, Katharine “Lisette” Antonia Elisabeth Pfeiffer, a Catholic from a military
family with Bavarian roots. The Hilgards were respectable members of the haute bourgeoisie. As the youngest of three children, and the only boy, Henry Villard’s later willfulness may have
resulted from a perverse combination of too many parental expectations and too
much indulgence. From an early age Villard seemed drawn to the romantic,
adventurous side of his family, some of whom immigrated to the United States
and settled in Illinois and the surrounding region.

Some historical accounts of Villard’s life focus
on how his anti-Prussian, liberal sentiments drew him to America, but Villard
had normal adolescent difficulties which alienated him from his father. Repeated
problems due to neglecting his studies and finances gave rise to a series of unpalatable
choices for the eighteen-year-old, of which buying a second-class ticket on a
clipper ship, the Nordamerika, from
Hamburg to New York seemed to be the least onerous. Leaving the German states in
August of 1853 without the knowledge of his parents, Villard changed his name
to an anglicized version of a schoolmate’s name which closely resembled his own.
For a relatively long period neither his father nor his mother knew whether he
was alive or dead. With few skills and no knowledge of English, earning a
living in the United States was not easy for Villard. For almost two years he
wandered virtually penniless, first in New York City and then in the Midwest,
from one odd job or apprenticeship to another while living, in part, off the
kindness of fellow German immigrants who made up a substantial portion of the
populations in many of the cities he visited.[3]

Sometime late in 1854, Villard finally
visited his relatives in Belleville, Illinois. At the time, Belleville was one
of the great American centers of German culture. The community was populated by
German political refugees. Many had been involved in the Revolutions of 1848,
which had necessitated their departure from the German states. Situated in the
heart of the United States, Belleville looked like a typical German village but
contained an intellectual elite that shared America's republican values and
devotion to freedom from political repression. They were political liberals who
loved most of the principles of their adopted land, but not all. Many rejected social
reformist traditions popular in the 1830s and 1840s such as the temperance
cause and women’s rights, but the town was one of the centers of the
abolitionist movement. Villard’s time in the community would have a profound
impact on his relationship to his adopted country.[4]

When Villard suddenly appeared in
Belleville, his relatives at first showed little enthusiasm for his arrival but
did provide him with some financial support. Even with the help of his family, however,
his early twenties were crowned with few great successes, but they did lay the
foundation for some of his great achievements. Working as a clerk in a law
office, he developed an interest in pursuing legal studies. More importantly,
he improved his English during this period and, anxious to avoid demeaning
manual labor, started to devise grandiose business schemes. By the age of twenty-one,
he had earned sufficient seed money to pay his expenses for an attempt to round
up investors to buy land in Kansas for a kind of German "free-soil"
community intended to thwart the advance of slavery in the territory. The
enterprise never got off the ground, but Villard made some contacts among
anti-slavery activists and, as always free of inhibitions, he visited some
important potential supporters, such as the senior senator from Illinois,
Stephen Douglas. During his "dog-and-pony” show to drum up investors for
the Kansas venture, Villard retraced his poverty-stricken steps of just a few
years earlier, but this time with enough cash to stay in first-class lodgings. Despite
the support of many influential, anti-slavery Republicans, whom he had come to
know by working on the new party's election campaigns, Villard's lack of
business sense and influence was evident and certainly contributed to the
enterprise’s failure. The experience, however, did nothing to thwart his personal
ambition and taste for a more refined life. A few years later, he headed west
to mine for gold, an undertaking that helped ignite a passion for the prairie
states and led to a book about his experiences, but produced no yellow metal and
quick fortune.[5]

Villard’s creative bent and desire to avoid
confining, repetitive tasks led him to journalism. For most of the 1860s,
Villard alternated between working as a freelancer and an employed journalist
for a series of German and American newspapers reporting on a variety of topics.
Once Villard established a reputation as a journalist, he succeeded in
arranging the unusual step of syndicating his work. Some of the newspapers were
financed openly by political parties. As a supporter of the Republicans (though
not an American citizen until 1864), he preferred writing for their newspapers,
but he enjoyed some of his greatest successes with Democratic newspapers. It
was while working for one of those newspapers in 1858 that he covered the
famous Lincoln-Douglas debates. In contrast to his later expressions of
impassioned support for Abraham Lincoln, Villard's initial reaction to the
senatorial and later presidential candidate was unfavorable to say the least.

Although he would have been happier just to
let the South secede following Lincoln’s presidential election in 1860, the Civil
War provided Villard with a journalistic opportunity. Even before the fighting
started, he enjoyed some choice assignments. He reported for the New York Herald Tribune on Lincoln's
activities in Springfield, Illinois, after the November election but before the
inauguration in the spring of 1861. Although his views of Lincoln had mellowed
somewhat, in November of 1860, soon after the election, Villard observed:

...I doubt Mr.
Lincoln's capacity for the task of bringing light and peace out of the chaos
that will surround him. A man of good heart and good intention, he is not firm.
The times demand a [Andrew] Jackson.[6]

Although Villard's comments may have been
influenced by the politics of the newspaper for which he was writing,
considering how well Lincoln proved his resolve during the conflict, Villard
remarks lacked presence and historical insight. Indeed, later in life, he came
to appreciate Lincoln's vision for America.

As an established reporter with good
contacts and considerable charm, Villard secured interviews with several
important military and political figures during the war. He witnessed and wrote
about many of the major engagements of the conflict and endured some of the same
risks and deprivations as ordinary soldiers, which may have contributed to
chronic ill health throughout his later life. His work as a war correspondent,
which he returned to briefly during the Austro-Prussian and Franco-Prussian Wars
(1866 and 1870-1871, respectively), lasted until the last full year of the
American Civil War, when he was called back to Europe by his family. Villard's
oldest sister was dying; their mother had already passed in 1859. He reached
Speyer a few days before his sister's death. Villard stayed in Europe for
approximately six months, during which time he acquired his inheritance from
his mother’s estate (minus numerous deductions that his father felt appropriate
to settle Henry's many prior debts), but his turbulent relationship with his
father had changed little in the decade since he had left home and gave him
little reason to linger in Speyer. He returned to the United States in March
1865 and on arrival in Boston learned that Richmond had fallen, Lee had
surrendered, and Lincoln had been assassinated.[7]

His arrival in Boston was no accident. With
his mother's inheritance and a reasonably good start as a journalist, Villard
was intent on proposing marriage to Boston resident Helen Frances (Fanny)
Garrison, daughter of William Lloyd Garrison, America's most famous (indeed he
was world famous) and perhaps most notorious abolitionist. While others had talked
of limiting slavery to the Old South, gradual abolition of the institution, or
sending blacks back to Africa, Garrison had for decades called for an immediate
and complete end to the practice, and equal rights for African-Americans, a perspective
which was not only radical but seditious for most Americans in the first half
of the nineteenthcentury. Garrison had publicized his views in the Liberator, the leading abolitionist
newspaper, which he published from 1831 until the Thirteenth Amendment to the
Constitution made slavery unconstitutional in 1865. To the horror of many, he had on
one occasion even burnt a copy of the "great national sin,"
the United States Constitution, which had enshrined the abomination of slavery
into law. Villard evidenced no problem with Garrison's radical feelings about slavery,
but later accounts do claim that this Pfälzer (someone from the Rhenish Palatinate) was much less happy about the
family's stand against smoking and drinking and in favor of women's rights.[8]

Villard had met Fanny quite by chance
several years earlier. Despite Fanny's views on some of Villard's habits, they
fell in love relatively quickly and married in 1866. The couple was devoted to
one another. Well into old age, Villard seemed to have genuinely bemoaned any
absences from her. They doted on their four children, three of whom survived into
adulthood: Harold, Helen, and Oswald Villard. When their son Henry died at age
seven, the parents penned a tribute to him. Fanny's father was at first a
little skeptical about his future son-in-law’s prospects and his break with his
own father, but the two seemed to have enjoyed a good deal of mutual respect.

Soon after their marriage, the couple made
two trips to Europe. The trips had several purposes. Villard wanted to
introduce his new wife to the pleasures of Europe and to his family. One of the
trips coincided with a triumphant tour of abolitionist groups in the United
Kingdom by his father-in-law, whose consistent support of the cause was much
appreciated by many parts of British society. Villard continued some of his
journalistic work and sought help for his many physical ailments at European
spas.[9]

Perhaps, most importantly, it was at this
time he began an entirely new career. Garrison introduced his son-in-law to the
American Social Science Association, a group organized in 1865 to discover the
immutable laws governing man and his social relationships and apply them to
contemporary society. Its members included intellectuals, politicians, and a
number of prominent businessmen. Villard became the organization's secretary,
editor of its journal, the Journal of
Social Science, and one of its chief fundraisers.

Although most of his prior work experience
was as a war correspondent, Villard had by the late 1860s begun to grow
interested in marketing American securities abroad. By leveraging his status as
William Lloyd Garrison's son-in-law and his fluency in German and English, he had
developed enough contacts and financial savvy to engage in selling American
securities while traveling in Europe. During the American (1865-73) and German
(1870-73) post-war boom years, this was probably a lucrative business .[10]
On the heels of the 1873 international financial collapse and depression, his
role as a financial intermediary shifted. While convalescing in Heidelberg,
Villard was approached by a group of Frankfurt investors, who were holding
Wisconsin Central Railroad bonds that were in default. The investors asked him
to perform a somewhat different task. His mission between the two countries
changed from mere salesman to troubleshooter, although privately some of the
bankers also wanted him to go back to the United States to obtain undervalued securities
whose prices had been significantly depressed by the panic.[11]

It was at this time that Villard developed,
or rekindled, two loves: the Pacific Northwest region and railroads. In typical
Villard fashion he convinced Jacob S. H. Stern, the leader of the Frankfurt
banking group, to double-down on his American railroad investments. Villard was
confident that future immigration would lead to much higher revenues and
profits for the existing rail lines in the West and that the poor management of
existing rail lines could easily be remedied. With German backing, Villard
effectively bought up virtually all the rail lines between Oregon and San
Francisco, establishing the Oregon Railway & Navigation Company (ORN), the
firm to which he probably had his deepest, long-term business attachment. As
president of the new concern, his reputation grew, but the dream of controlling
the transportation resources of the entire Pacific Northwest eluded him. Moreover,
his existing ambition brought him into conflict with three major rail lines,
the Union Pacific (UP), the Northern Pacific (NP), and the Great Northern (GN).
Like many of the moguls with whom he now was in conflict, Villard realized that
only true consolidation of rail lines within a region could avoid ruinous competition
and make the huge initial investments profitable, an approach that went well
beyond the pooling arrangements and loose agreements that railroad officials had
often devised during the previous decades.[12]

To realize his dream of control, Villard,
acting from the seat of financial power in New York City, needed to achieve two
goals: get out from under the control of his foreign investors and buy at least
one of the major neighboring lines. By 1881 he had realized both aims. First he
targeted the profitable Oregon Steam Navigation Company, which operated
riverboats, a shortline railroad, and other transportation assets along the Columbia
and Willamette Rivers in Oregon. Using the assets of the target line as
security, he managed to finance its acquisition in what may have been the first
management buyout (MBO) in history. Villard also convinced the Frankfurt group
to sell its holdings in his unprofitable Oregon Steamship Company to him at a
loss. He combined both operations into a new firm, the Oregon Railway &
Navigation Company. Yet the new line did not yet stretch across the West. For
that he would need more money for additional construction, for conversion of narrow
gauge lines to standard gauge, and for acquiring control of other lines, but he
was well on the way to securing his objective. To achieve the next step, he
turned his sights on the Northern Pacific Railroad, chartered by Congress in
1864 with rights to build rail and telegraph connections between Lake Superior
and Puget Sound. By the 1870s the NP had already experienced one bankruptcy. Buoyed
by new financing, it resumed work on the second transcontinental rail line and
expanded its activities further west. Convinced that the only way of saving the
Oregon Railway & Navigation Company was by acquiring the majority of the
Northern Pacific’s shares, Villard in 1883 used his contacts on Wall Street to
gather eight million dollars from 53 investors (approximately $180 million in
2010$).[13] Remarkably,
this feat was accomplished within twenty-four hours of his private announcement
and without his new investors learning the purpose of the money. By this time,
Villard had accumulated enough capital himself that he could contribute nearly one
million dollars (approximately $22.5 million in 2010$) to this "blind
pool," for which he served as the only “seeing-eye dog.” Even his old
client Jacob Stern was reported to have participated, despite Villard's earlier
double-dealing. The Northern Pacific's shares were added along with those of
the Oregon & Transcontinental, a holding company that controlled the ORN, to
a new holding company that now controlled 2,700 miles of track in the West and
Midwest.[14]

The various rail lines under Villard’s
financial control were still not connected, however. To that end, Villard
raised enough money to employ 25,000 workers laying track at a rate of three
miles a day (with a burn rate of four million dollars per month (approximately
$90 million per month in 2010$)) across open territory in Montana that had
recently witnessed the Battle of the Little Bighorn, the worst military
disaster in the U.S. government’s long series of battles with Native Americans.
When the transcontinental connection was completed in September 1883, Villard
controlled the second line that stretched from the Mississippi to the Pacific, a
distance equal to that between Paris and Moscow. Villard threw a triumphantparty with guests that included intellectual notables, a former American
president, and many current and potential investors, including the managing
director of Deutsche Bank, Georg Siemens, whose experiences in the United
States during that trip strongly influenced his personal and business outlook, according
to his son-in-law biographer.[15]

The bill for the construction and the Golden
Spike party arrived in the fall of 1883. Like so many of his undertakings,
Villard's first involvement with the Northern Pacific reflected his disdain for
any constraints on his vision and his abhorrence of cost-benefit analysis. Villard's
undertaking had added ten million dollars in watered-down stock and forty
million dollars in debt to the Northern Pacific accounts (approximately $220 million
and $880 million, respectively, in 2010$). Even as reports about the company's
shaky finances surfaced in late September, Villard somehow issued another eighteen
million dollars in debt (approximately $400 million in 2010$), half sold in
Germany. Predictably, throughout the fall, Northern Pacific bond prices tumbled
as further cash needs were announced and the company started relying more and
more on short-term financing. By the end of October its common shares were
selling at twenty-seven-percent of their nominal value, but Villard saw the dip
in share prices as an opportunity for the company to buy back its own stock, which
further increased the company's debt ratio.[16]

In December Villard finally bowed to the
inevitable. The drop in the NP's share price threatened the finances of his
other holdings and led to his personal bankruptcy. With the line and his
personal finances in the hands of a group of bankers led by J. P. Morgan, he
tendered his resignation from all his administrative positions (as required by
the bankers) and lost many of his assets, including his Madison Avenue mansion,
completed just weeks before the final crisis, and which still stands as the
historic wing of New York Palace Hotel. The bankers' reorganization of
Villard's railroad interests saved the lines from another bankruptcy for nearly
a decade, despite ever greater investment needs and tensions among investors. Typically,
Villard did not see his management or other skills as responsible for the
bankruptcy. His lack of interest in details and accounting were of no
consequence. In his mind, bad luck was the culprit.[17]

Villard's German roots provided him with an
opportunity to revive his fortunes. He, his wife, and children spent nearly two
years in Berlin after the disaster. In 1884, Villard even considered moving
back to Germany permanently. Despite heavy losses inflicted on German investors
by the NP's financial difficulties, some Germans and Americans continued to
have faith in Villard's managerial reputation and trusted him to identify and
safeguard American investment opportunities overseas. Still enchanted by his
visit to the United States and sharing many liberal convictions with Villard,
Georg Siemens, in particular, seemed willing to overlook his American friend's
failings. In 1886 Deutsche Bank, by then one of Germany's leading banks with a
strong international focus, was still anxious to sell American investments to
Germans and was unimpressed by NP's new management. It signed Villard to a
lucrative contract to represent the bank and Jacob Stern in the United States. Villard’s
responsibilities were varied and extensive. Within a short time, he had
introduced a long list of new transportation and other investments to German
investors through Deutsche Bank. Deutsche Bank even made a $5 million equity
investment (approximately $120 million in 2010$) that got Villard back into the
management of a number of western transportation companies including the
Northern Pacific. Against the advice of many of his colleagues, Siemens agreed
to make further significant investments in railroad lines and other companies.[18] As
Deutsche Bank's U.S. investment advisor and manager for nearly a decade,
Villard claimed to have sold $64.3 million in U.S. securities (approximately
$1.6 billion in 2010$) to German investors, an amount significantly larger than
Deutsche Bank's total equity capital and nearly as great as its total assets in
1890.[19]

Villard's principal device for managing
these extensive investments and encouraging new ones was to create a holding
company structure, which would at once diversify risk and serve as a conduit
for the flow of funds. The North America Company (NAC) required $24 million (approximately
$660 million in 2010$) to hold large packets of shares in NP, the Wisconsin Central,
and the company near and dear to his heart, the Oregon & Transcontinental
Company, the successor to his first transportation investment, as well as other
firms. When Deutsche Bank balked at providing all of the huge sums for these
investments, more than its own equity capital base, Villard sought other
investors. Little is known of how Villard’s holding company scheme worked, not
even his main investors understood its convoluted structure, but the idea seems
to have been that the NAC would serve as an investment fund, which would
simultaneously allow investors to invest in a wider range of companies, thereby
exercising more control over the companies by concentrating ownership, and
serve as a reserve fund for the investments should access to capital become
impaired. Organized under the laws of New Jersey with $50 million in capital (approximately
$1.2 billion in 2010$), NAC would keep some cash and have the option to sell
some of its holdings to support entities short of capital, a kind of pooling of
resources to avoid panic borrowing or sales of equity. In addition to Deutsche
Bank, several other financial heavyweights were involved, including John D. and
William Rockefeller, J.P. Morgan, Kuhn Loeb & Company, and Speyer &
Company. Even in early 1890, though, when financial markets were fairly strong,
much of its financing came from short-term debt, collateralized by its own
stock and that of its holdings, an obvious weakness for a company that was
designed to support other companies’ financing needs and equity values in
turbulent times. As U.S. finances deteriorated in the fall of 1890, the company
had to draw on more help from German investors, undermining NAC's credibility
and that of its president, Villard.[20] However,
the worst was yet to come.

One of the beneficiaries of the holding
company was supposed to be Villard's old friend, Thomas Alva Edison. Villard
had known and admired Edison since 1880. As an early investor in Edison
ventures, he had arranged for demonstrations of Edison's dynamo and lamps,
installed Edison lights on some of his trains, and tried to get German
investors interested in providing capital for Edison's U.S. companies and
bringing some of Edison's patents to Europe. Indeed, Villard was hawking
Edison's companies in Europe when he met Siemens for the second time. Edison
and Villard shared many attributes: both were visionaries with very little
patience for day-to-day business matters and financial constraints, and both
were hard of hearing and deaf to many kinds of criticism. Their large visions
required capital and investors, a fact which brought them together, creating a
mutual dependence. Edison believed that only large generators and an extensive
distribution system for electricity would create the necessary infrastructure
for his inventions, a huge upfront investment before light bulbs and
electricity could be sold in great quantities. Villard loved big deals.[21]

Villard was ideally placed to find an
international solution for many of Edison's problems. While working for
Deutsche Bank, he also represented some of the interests of Siemens &
Halske (S&H), the German electrical giant. Deutsche Bank itself was deeply
involved in electrification, in part through Georg Siemens' family connections
with S&H, and its financial support of rival Allgemeine
Elektricitäts-Gesellschaft (AEG). Although many conflicts of interest and
competing product lines existed, Villard and Deutsche Bank helped raise German
and American capital to allow Edison to consolidate his interests and fund
expansion. A truly speculative venture, it turned out to be one of the most
important, and international, private equity deals of the nineteenth century.[22]

In April 1889, Edison General Electric
Company (EGE) was formed. Edison hoped that the new company and its
by-and-large distant shareholders would relieve him of financial pressure. J.P.
Morgan, who had been one of his principal backers, and rarely a silent partner,
took only a small amount of the shares. The amounts of equity capital varied
over time, but seem to have begun with $3 million and gone up to $8.3 million (approximately
$73 million and $203 million respectively in 2010$). As representative of the
German investors, Villard become the company's first and only president.[23]

The company's business model helps explain
the large increase in financing needs. The new company not only was intended to
integrate Edison's manufacturing and marketing interests in electric lighting
and machine works in order to achieve better operating efficiencies, it was
also designed to expand the business by helping finance the conversion or
construction of power stations in major cities. Before electricity could be
used for devices (lights and appliances), power had to be generated and
distributed. To this end, EGE used its own shares to buy an interest in some
new and old local electrical companies and to help finance further construction.
The machinery and cable for generation and distribution was sold to local power
companies by EGE, which was able to incur large receivables financed by the
deep pockets of their German investors. Increasing sales required more staff
and above all more capital to finance customers.[24]

Predictably, conflicts between management
and the investors grew steadily. S&H resented the treatment of its patents
and its lower-than-expected profits on the sale of cable to the new company. EGE
profits were lower than expected and declared dividends went unpaid. Some of
the participants started to challenge Edison's conviction that direct current
was reliable and efficient, an issue that would haunt Edison for years and one
about which he was ultimately proven wrong. Villard had problems fulfilling his
promise that EGE shares would be listed on the New York Stock Exchange, a
failure that would hurt their price and liquidity. NAC's Edison share holdings
and loans brought little relief. The original agreement among the syndicate
members required investors to hold all or parts of their shares. They were
repeatedly requested to extend the period. Operational problems mounted. Theconsolidation of the former businesses
progressed more slowly than originally anticipated, and patent disputes
threatened some business operations. Although investors found the company’s
profits disappointing, sales grew quickly, despite vigorous competition, adding
to the company's working capital requirements. Even Edison started to lose
faith in his friend. EGE had been founded to make his life easier and provide
him with more time for his inventions, not to make his life more complicated.[25]

Once again, Villard saw a big deal as the
solution. As early as March 1890, he argued that combining EGE with its rival
Thomson-Houston would create the "greatest enterprise in the world...."[26] Founded
by Elihu Thompson, one of the most
prolific inventors in American history, Thompson-Houston (TH) was much better
run than EGE. Thompson focused on scientific matters and managerial control was
given over to professional managers. Under the leadership of Charles Coffin, a
former shoe company executive, TH recruited many skilled managers who concentrated
on strategy, marketing, and technical innovation. The company was organized
into a functional structure with clearly defined departments. Unlike EGE, it
broadened its product line to include both direct current (DC) and alternating
current (AC) for lightening and streetcar systems. As a leader in management
organization and a supplier of electronic equipment, TH enjoyed solid financial
backing.[27] From
the very founding of EGE, Villard had pushed for more consolidation of
competing companies. Because the ensuing merger between EGE and TH spelled the
end of his involvement in this sector, as well as Edison's and the German
companies' involvement in the new company, some accounts give insufficient
credit to Villard's original insight. Taking credit for the deal, J. P. Morgan
led the consortium that financed the merger. TH's old shareholders held the
major position in the new company. EGE's shareholders, including Edison,
Deutsche Bank, and the other Germans, chose to hold little or nothing of the
now Morgan-controlled enterprise. Even though Villard’s rosy prediction about
the future of the new company, General Electric (GE), was borne out, in 1892
the Germans seemed to count their blessings that they got their money back before
new management or macroeconomic difficulties arose.[28]

In fairness to Villard, he had a very full
professional and personal life at that time, including, tragically, the death
of his youngest son in June 1890. The bereaved family toured Europe for many
months. Villard found time, however, to interview the recently ousted German
Chancellor, Prince Otto von Bismarck, as well as other German political and
business leaders. Moreover, not only was he running the Edison businesses
during the period, but Villard took an active role in the 1892 presidential election
campaign of his friend Grover Cleveland, a Democrat whose commitment to the
Gold Standard endeared him to the business community. Cleveland's success in
the election did not eliminate fears that the United States would not honor its
gold commitments, which made getting short-term loans in New York difficult,
severely threatening the NAC of which he was still president. Ostensibly, he
was also overseeing Deutsche Bank's (and its clients') other substantial
investments in the United States.

By the middle of 1893, this latter
responsibility showed obvious signs of neglect or worse. The physical assets,
not the state of incorporation, of the vast majority of Deutsche Bank's and its
clients’ investments in the United States was west of the Mississippi, but Villard's
office and residence was in New York City. Although on the surface this division
may seem odd, in practical terms the fortunes of these assets depended to a
large extent on the health of East Coast and European capital markets.

The second Northern Pacific bankruptcy was
part of the third great wave of American railroad failures. In 1893, 74
companies representing $1.8 billion in capital (approximately $45 billion in
2010$), nearly one-sixth of total U.S. capacity, went into receivership due to
the financial panic that spring. Since the previous bankruptcy wave in 1884
(the first occurred in 1873), the Northern Pacific evidenced a seemingly
unquenchable thirst for capital. In the decade following Villard's first
departure from the company, NP had more than doubled the length of track it
controlled, accounting for approximately three percent of the United States'
entire stock. It controlled terminal, coal, logistic, and navigation companies
and an amount of land equal to fifty percent of present-day Germany. Its
operations actually consisted of 44 separate companies with $380 million in
debt (approximately $9.5 billion in 2010$). In 1893 with the parent company
alone owing $10.9 million in interest and sinking fund payments (approximately
$273 million in 2010$), its fixed financial costs alone put it at considerable
risk. Considering that average operating revenues and income over the previousthree years were $24.5 and $9.8
million respectively (approximately $613 and $245 million in 2010$), even an untrained eye should have seen
that the company was exposed to a downturn in economic activity.[29]

Despite the risks as 1893 began, Villard
and his investors remained remarkably sanguine. Deutsche Bank managers
expressed some concern about the price of its preferred shares, but did not
have concerns about anything else. In May of 1893 panic swept through U.S.
capital markets as fears mounted that America, despite Cleveland's election,
would fall off its strict adherence to the Gold Standard. The panic led to one
of the most severe downturns in U.S. history. With banks failing, unemployment
rising, and a sharp drop in equities prices, short-term lending was hard to
come by. Farm commodities prices, already in decline and a mainstay of NP's
business, fell further. Villard's NAC, which was to have served as a financial
backstop, itself could not get additional loans from its original investors or acquire
new ones. Price competition among the rail lines increased further, impairing
revenues. In the early summer NP's share price dropped to less than eight
percent of its par value, a sure sign that bankruptcy was imminent, but even
companies like GE were at risk.[30] Villard was not alone in underestimating the
dangers inherent in over investment, conflicting and unclear bankruptcy laws,
as well as volatile capital markets. The bankruptcy of the NP and its sister
companies was large, but by far not
the largest case during the crisis. By 1896 twenty percent of all U.S. railroad
trackage was held by bankrupt companies.

Villard’s role in the NP bankruptcy saga says
as much about Villard as it does about the difficulties of managing investments
over great distances, especially in an era with high macroeconomic turbulence,
inappropriate or nonexistent financial regulation, and rudimentary
communication technologies compared with that of the twenty-first century. Without
a clear warning about NP's dire straits, in the spring of 1893 Villard
announced his desire to resign his responsibilities with Deutsche Bank, but the
resignation had not been accepted immediately and no replacement had been found.
On August 3, Villard cabled his conviction that the only feasible option for NP
was receivership, but the letter with his explanation of the decision and the
defense of his own behavior was dated August 15. German investors were furious
not just about what happened but also about how decisions were communicated. After
months of false hopes and dire rumors, Villard finally wrote in mid-August to
his honorable friend, Siemens, that NP had come under a court-appointed
receiver, a step Villard said he had encouraged albeit without prior Deutsche
Bank consultation over essential aspects such as the choice of administrators. Although
Villard claimed that his own responsibility made writing the letter difficult,
the gist of his missive outlined all his achievements, his own lack of fault,
and how much he himself had lost. Typically, he was optimistic about an
economic recovery and the possibility of mitigating excess competition that
would eventually justify the high levels of investments the company had made.[31]
His optimism would eventually be justified, but the turnaround took three years
and a lot of patient administrative savvy, hardly attributes which he had
hitherto displayed. Moreover, at least some of the investors doubted his
sincerity. Even his great-granddaughter reported, in contrast to his assertions
about losses, that Villard, who owned directly or indirectly NP debt and
equity, was well prepared for the crisis and lost little of his personal
fortune.[32]

German investors were furious, but despite
many misgivings, they needed Villard, at least during the early stages of the
NP's reorganization. Villard, who initially asserted with his German clients
that the receivership was the only sensible course, claimed in September that
he had played no part in the decision to put the company in the hands of
administrators whose job it was to insure that as many creditors as possible
would be paid out of the assets of the company. While one of the receivers was
a long-time Villard associate (indeed friend), the others were loyal to
non-German investors like the Rockefellers. No one on the committee represented
the Germans. By late August, however, Deutsche Bank had its own man on the
scene with a clear mission to safeguard all German interests, not just those of
Deutsche Bank, but his influence was limited. Only with German investors united
behind the bank, could Deutsche Bank hope to coordinate an intensive,
multi-year effort to salvage the interests of its customers. Meanwhile,
Villard's friend Siemens was convinced that the origin of the NP's problems lay
in the acquisition of several ancillary lines, especially the Wisconsin
Central, for which NP had simply paid too much and in which Villard,
suspiciously, had a financial interest. Villard still had some influence over
the receivers, though, and for this reason Deutsche Bank had to proceed
carefully. During late August and early September, Villard remained virtually
in hiding, leaving the briefings to his assistant.[33]

In September, Siemens, whose personal
reputation was on the line, left for a second and far less enjoyable trip to
the United States. Meeting Villard was one of the first points on his agenda. While
defending Villard in public, Siemens’ stepson and biographer maintained that in
private his stepfather accused Villard of violating his duties to Deutsche Bank
by willfully neglecting to inform the bank of problems he simply could not have
overlooked. Even Villard's offers to resign the previous spring reflected, in
Siemens’ opinion, only Villard’s fatigue and desire to return to Europe, not
the company's dire financial straits. It is not clear what infuriated Siemens the
most, Villard's incompetence, his dishonesty, or his failure to inform Deutsche
Bank before the public discovered NP's predicament.[34]

Apart from the long-term financial issues
facing the NP, creditors had to decide what to do with Villard who still had
an influence on some of the investors, who were,in turn, highly suspicious of one another, management, and the
receivers. Under no circumstances was Villard permitted to continue representing
Deutsche Bank and the other Germans. By October Siemens had found an
experienced banker, Edward D. Adams, to represent the bank and help structure
the ultimate reorganization of the NP, a task that lasted many years. That
solution would incorporate many of Villard's ideas, especially closer
cooperation among adjacent and parallel lines, but not his absentee management
style, his willingness to throw good money after bad (and convince others to
follow suit), and most importantly his blindness to his and his managers’
conflicts of interest.[35]

The NP's financial distress spelled the end
of Villard's business life. Apart from occasional consultations, his
relationship with Deutsche Bank was at an end. Ever modest to the end, Villard
claimed credit for the NP turnaround in his autobiography. According to
virtually all accounts of the reorganization, he played virtually no role in
the administration and refinancing of the line after 1893, a feat that was
accomplished by J.P. Morgan, Deutsche Bank, its representative, and several
other investors who had, and wanted to have, nothing to do with Villard. Siemens,
whose own reputation had been tarnished by his inability to control Villard,
felt personally betrayed by Villard and disgusted by his passion for
self-promotion and "ruthless pursuit of money."[36] Villard was tried for fraud and then sued for
malfeasance by some investors, but he escaped all legal punishments. Some of
the firms that he had established or controlled continued to exist. Though it
remained a murky entity for investors and regulators, NAC, which accounted for
a substantial portion a Villard's own portfolio, still held NP securities and
was undoubtedly involved in subsequent reorganizations into the new century.

According to his great-granddaughter, the
recession and then collapse of the line cost Villard little of his personal
fortune. She was probably right. He also probably profited from the resurgence
of the line in 1896, for which he claimed credit. In any case in 1893 at age
58, relieved of his business burdens, he could easily settle down to the life
of a wealthy retiree, entertaining foreign dignitaries, writing a two-volume
autobiography ninety percent of which dealt with his journalistic career, engaging
in philanthropic work such as making substantial gifts to the University of
Oregon and Columbia University in New York City, and enjoying his family. His
great-granddaughter admittedly paints a somewhat rosy picture. He was still
troubled by bad health and deafness, a condition he shared with his friend
Edison. Horrified by what he viewed as America's imperialist war with Spain in
1898, he preferred to stay in Europe for its duration. In November 1900, back
at his residence in Sleepy Hollow just north of New York City, Villard died
surrounded by most of his immediate family: all but his daughter who was by
then living in his native land. His long-time friend Edison, as well as his
friends journalists Carl Schurz and Horace White, attended the funeral.[37]

Despite his many setbacks, Villard’s life
was by any measure a grand success. Having arrived in the United States
virtually penniless, he later lived in grandeur and enjoyed a happy family life.
While enmeshed in business conflicts on both sides of the Atlantic, at one time
or another he had been on familiar terms with the leading bankers, inventors,
journalists, and politicians of his day. Some remained close to the end. His
investments were both a measure of his financial clout and his broad contacts
and interests. He pioneered such diverse financial engineering tools as
leveraged buyouts and mortgage-backed securities, well before they became common
business buzzwords and even household terms. At the peak of his financial
power, Villard’s assets under management in the name of Deutsche Bank alone represented
six percent of the bank’s entire assets in 1890, an amount in 2011 equal to
approximately $94 billion dollars.

Many of his visions were realized: electrification,
the Pacific Northwest's economic growth, and for a while, even the combining of
rival rail lines in the West. All these things came to pass, or prospered, as Villard
had forecasted, but perhaps with less trauma without his untempered ambition
and inconsistent commitment.

Perhaps, though, Villard’s long-term
influence was greater in the political and social spheres of his life. Many of
the currency and banking reforms that he had championed came to pass as
American Progressives began to recognize that a more powerful government could
serve as an effective counterweight to private initiatives and help insure
financial stability. Several American universities and cultural institutes,
such as the Metropolitan Museum of Art and the Museum of Natural History, as
well as churches and hospitals in his native land, benefited from his
generosity. The newspaper he bought in the early 1880s, the New York Evening Post, which could trace
its heritage back 80 years to Alexander Hamilton, remained a
beacon for liberal ideas for many decades. After Villard’s death, his son, Oswald Garrison, one
of the founding members of the National Association for the Advancement of
Colored People, continued to publish the paper, until 1918 when anti-German
sympathies hurt circulation. Oswald kept its weekly supplement, The Nation, in print and turned it into
one of the leading left-liberal magazines in the United States. Although it is
not clear that Oswald’s father would have supported all of his liberal reform
causes, he would have been proud that his son continued to use the very special
political and social connections of an insider to question basic tenets of, and
contribute to, American society with the very special perspective of an
outsider. Perhaps that is Henry Villard’s most profound legacy.

[1]
Christopher Kobrak, Banking on
Global Markets: Deutsche Bank and the United States, 1870 to the Present (Cambridge:
Cambridge University Press, 2008), 28-31.

[2] There are extensive collections of Villard’s
letters and those of friends, family, and rivals at Harvard's Baker Library,
the Library of Congress, the Deutsche Bank Archive (HADB), and the Morgan
Library. Villard wrote an autobiography that focuses on his early life and
tends to sugarcoat his business failures. (Memoires
of H. Villard: Journalist and Financier, 1835-1900 (Westminister: Archibald
Constantable, 1904). His great-granddaughter's biography, Villard: The Life and Times of an American Titan (New York:
Doubleday, 2001), quoted above, contains some passages that read like family
folklore but in many parts is extraordinarily candid and agrees with other more
scholarly works. She and her co-author, John Cullen, rely on an early draft of
Villard's own autobiography, which may have been buttressed or embellished by
family reminiscences impossible to verify. I rely on her account of his early
life, especially where it does not flatter her great-grandfather or conflict
with other sources and plausibility. Dietrich Buss's: Henry Villard: A Study in Transatlantic Investments and Interests,
1870-1895 (New York: Arno Press, 1978) is a good starting point for the
study of his business career. Villard is cited in many histories and
biographies of the nineteenth century, which will be mentioned in the notes in
this article.

[3]The
Life and Times of an American Titan, 1-55and "First Experiences in America," Manuscript Fragment of Villard's Memoires, Harvard
Collections.

Cite this Entry

APA Style

"A Reputation for Cross-Cultural Business:
Henry Villard and German Investment in the United States
." (2018) In Immigrant Entrepreneurship, Retrieved August 14, 2018, from Immigrant Entrepreneurship: http://www.immigrantentrepreneurship.org/entry.php?rec=26

Chicago Style

Kobrak, Christopher. "A Reputation for Cross-Cultural Business:
Henry Villard and German Investment in the United States
." In Immigrant Entrepreneurship: German-American Business Biographies, 1720 to the Present, vol. 2, edited by William J. Hausman. German Historical Institute. Last modified September 30, 2015. http://www.immigrantentrepreneurship.org/entry.php?rec=26

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This project is sponsored by the Transatlantic Program of the Government of the Federal Republic of Germany through funds of the European Recovery Program (ERP) of the Federal Ministry of Economics and Technology.